Please tell me you have a 5 speed. Everything seems slow when you drive an auto.
Basic bolt-ons do wonders for the 318. Intake, exhaust, chip, throttle body. You'll be smoking 325 auto's off the line np, you'll murder any 320 (e36 or e46). Good god, 320's are dogs! I drove a newer E46 325 5 speed 2 days ago. Until 2 days ago, never drove anything but E46 M3 and 330. For some reason it felt a lot slower than my 318. Cars must be getting slower and heavier these days.
Don't bother with engine swaps for the 318, it's far too much work. You might as well invest some time and money and rip out some weight. If you're serious about performance, do some "freebie" mods and see if you're still unhappy. Then decide whether or not to take more drastic measures. In any case, if you've got an auto, it doesn't matter what engine you have. The M42/M44 isn't TOO bad, BMW's are just too damn heavy. I noticed you said swap out the tranny. Honestly, you can't bitch if you have an auto. It makes the car significantly slower. 4 cyl's have to be revved, kept light weight, and the more gears the better. Even if you swap a 325 motor, I seriously doubt you'll be happy with the performance even with the auto. It's not THAT much quicker until you get the manual gearbox. My advice at this point (if you really do have a dreaded auto), save up a bit of cash and buy either a 5 speed 325 or 328 (a total gem).
BTW mmclaren, no such thing as a BMW V6, they are all inline.
Bry